Markets

Question 1

Define a ‘market’.

Answer 1

A place where buyers and sellers meet to exchange goods/services for money.

Question 2

What are the different types of markets?

Answer 2

• Local/global
• Mass/niche
• Consumer/trade
• Product/service
• Seasonal

Question 3

Define ‘market size’.

Answer 3

Total volume or value of sales of all the products in the market.

Question 4

Define ‘market growth’.

Answer 4

The percentage change in sales (volume or value) over a period of time.

Question 5

Define ‘market share’.

Answer 5

Amount of a market a particular firm holds expressed as a percentage.

Question 6

Define ‘market segmentation’.

Answer 6

Breaking down a market into groups with similar characteristics.

Question 7

What are the different types of market segments?

Answer 7

Age, gender, income levels, location, ethnicity.

Question 8

What are the advantages of market segmentation?

Answer 8

• Understand consumers better, e.g. how to meet their wants = happier customers.
• More sales and profits as products/services are designed correctly to target market segments.
• Prevents products being promoted to the wrong people.
• Can identify needs of other possible market segments to improve profits in the future (e.g. gym classes for older people).

Question 9

What are the disadvantages of market segmentation?

Answer 9

• Consumers do not always behave as expected, e.g. people on low incomes do buy expensive cars, clothes etc. This limits the ability to segment people into groups.
• Over time, consumer behaviour changes, so it’s important to keep up to date with these changes, otherwise segmentation is less valid.

Question 10

How do you evaluate market segmentation?

Answer 10

The importance and impact of market segmentation depends on:
- How easy it is to classify customers into groups
- How fast changing the market is
- How businesses use the information to help their strategies

Question 11

Define a ‘monopoly’.

Answer 11

One firm in theory or when a firm has more than 25% market share, e.g. Tesco and the NHS.

Question 12

How do monopolies impact business behaviour?

Answer 12

• Very high barriers to entry for new firms.
• Prices likely to be high.
• Quality likely to be low.
• Depends on how big the monopoly is - the bigger it is the less competitive the market is, and the monopoly will increase prices more whilst lowering quality.

Question 13

Define an ‘oligopoly’.

Answer 13

A market dominated by a few big firms but lots of small firms may exist, e.g. banks and cinemas.

Question 14

How do oligopolies impact business behaviour?

Answer 14

• Very high barriers to entry for new firms.
• Should not compete on price due to threat of price wars as big firms keep undercutting each other and no firms gain.
• Lots of non-price competition, e.g. branding, advertising, customer service, location choice.

Question 15

How do oligopolies impact business behaviour?

Answer 15

• Very high barriers to entry for new firms.
• Should not compete on price due to threat of price wars as big firms keep undercutting each other and no firms gain.
• Lots of non-price competition, e.g. branding, advertising, customer service, location choice.

Question 16

Define ‘monopolistic competition’.

Answer 16

A market that is made up of lots of differentiated firms, e.g. fish and chip shops.

Question 17

How does monopolistic competition impact business behaviour?

Answer 17

• Low barriers to entry for new firms.
• Usually compete on non-price factors as each firm is small but also firms are different to one another so branding, marketing and customer service are also important here.

Question 18

Define ‘perfect competition’.

Answer 18

A market that is made up of lots of identical small firms, e.g. fruit and vegetable market stall sellers.

Question 19

How does perfect competition impact business behaviour?

Answer 19

• Very low barriers to entry for new firms.
• All firms are identical to each other, there is no brand differentiation and so none of these firms can control their own prices, unlike other market structures, so firms accept the price that supply and demand dictates.

Question 20

Who protects consumers?

Answer 20

The Office of Fair Trade (OFT).

Question 21

Define ‘consumer protection’.

Answer 21

Refers to a group of laws that protects the rights of customers when dealing with a business. Monopolies could exploit their power by charging high prices / selling low-quality goods. Oligopolies could join an illegal cartel and fix their prices high.

Question 22

What is the ‘Consumer Rights Act 2015’?

Answer 22

Customers are allowed to return faulty goods for a full refund, or if they are not happy with the good/service if it doesn’t meet a level of quality to their satisfaction.

Question 23

What is the ‘Consumer Protection from Unfair Trading Regulations 2008’?

Answer 23

The product/service must be as advertised with no false statements given and adverts should not include content that consumers could find offensive.

Question 24

What is the ‘Consumer Credit Act 1976 and 2006’?

Answer 24

Controls how businesses lend money and makes lenders publish clearly how much extra interest charges will be paid by customers who borrow money / buy on credit. Firms can be prosecuted and fined if they act in a way that exploits consumers.

Question 25

How are prices determined?

Answer 25

• Prices and quantity are determined by Demand & Supply.
• Demand is what consumers want and have the ability to pay.
• Supply is the amount businesses are happy to sell at given prices.
• Equilibrium is where demand and supply meet.

Question 26

What are the factors that shift demand?

Answer 26

• Population
• Advertising
• Price of Substitute Goods
• Price of Complementary Goods
• Income
• Interest Rates
• Trends & Fashion

Question 27

What are the factors that shift supply?

Answer 27

• Productivity of Workers
• Indirect Taxes
• Number of Firms Selling the Good
• Technological Advancement (does it rise or fall?)
• Subsidies (increased or reduced?)
• Weather (e.g. bad weather damages crops)
• Cost of Production

Question 28

How do you evaluate price elasticity of demand (PED)?

Answer 28

• Elasticities are estimates and might not be 100% accurate that the good is/isn’t elastic/inelastic.
• Inelastic products - firms will put prices up to earn more revenue as demand changes little.
• Elastic products - firms will put prices down to earn more revenue as demand increases by a greater amount than the price decrease.

Question 29

How do you evaluate income elasticity of demand (YED)?

Answer 29

• Elasticities are estimates and might not be 100% accurate that the good is/isn’t elastic/inelastic or normal/inferior.
• Normal elastic goods are much more affected than normal inelastic goods when income changes as inelastic goods are usually necessities that we generally still buy regardless of income levels.
• When income rises, normal elastic good selling firms benefit the most and inferior good selling firms lose out on demand and sales.
• When income falls, inferior selling firms gain as more people switch to cheaper goods and the worst hit will be normal elastic goods.